Visa and Mastercard have reached a massive $30 billion settlement to resolve a longstanding legal battle over the credit card swipe fees they charge merchants.

The antitrust settlement, announced Tuesday, is one of the largest in U.S. history. If approved by the court, it would resolve most claims in a nationwide litigation that began in 2005.

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• Visa and Mastercard reach a $30 billion settlement with merchants over credit card swipe fees.

• The deal requires temporarily lowering fees by 0.04% for 3 years, capping future increases.

• Retailers gain the ability to steer customers to lower-cost payment methods like cash.

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Visa and Mastercard Agree to $30 Billion Settlement Over Merchant Fees

At the heart of the dispute are the interchange fees Visa and Mastercard charge retailers each time customers use one of their credit or debit cards to make a purchase. 

Merchants have long accused the payment networks of inflating these “swipe fees” and prohibiting stores from steering customers toward cheaper payment methods through anti-steering rules.

Under the proposed settlement terms, Visa and Mastercard have agreed to reduce these swipe fees by at least 0.04% for three years. 

They will also ensure rates average 0.07% below current levels for five years and permanently cap the fees they can charge.

Critically, the card networks will also remove the controversial anti-steering provisions that prevented merchants from encouraging customers to pay with lower-cost cards or cash. 

Retailers will gain more flexibility to offer discounts or surcharges based on the payment method used.

According to court filings, the fee reductions and caps alone are valued at nearly $30 billion. 

Small businesses comprising over 90% of the settling merchants receive the bulk of the savings.

While Visa and Mastercard denied wrongdoing, their executives framed the deal to address long-standing merchant grievances over swipe fees.

Not Everyone is Satisfied

Despite the eye-popping dollar figure, some critics believe the settlement may not rein in swipe fees long enough.

Retail industry groups argue that the temporary fee reductions are just “a drop in the bucket.” After the initial rate reductions expire, they warn Visa and Mastercard will be free to raise fees again with few constraints.

Law professor Adam Levitin of Georgetown University called the deal “a huge loss for U.S. merchants” since it still leaves them paying among the highest swipe fees in the developed world at around 2.19% on average.

Large retailers like Walmart, which opted out of a previous $5.6 billion swipe fee settlement, are expected to oppose this deal. 

They may object to this deal binding them as they pursue separate lawsuits against Visa and Mastercard.

Retailers likely won’t be the only ones objecting. 

Small banks and credit unions could also oppose provisions allowing big merchants to negotiate lower fees on premium reward cards.

The Long Road Ahead

Ultimately, the $30 billion settlement still has a long road ahead before it can take effect. 

It requires approval from U.S. District Judge Margo Brodie, which may not happen until late 2024 or early 2025. 

Appeals are likely from stakeholders on both sides.

In the meantime, legislation like the proposed Credit Card Competition Act, allowing merchant routing choice, could gain renewed momentum if the settlement is considered insufficient.

This historic settlement could undoubtedly provide substantial short-term swipe fee relief for both large and small merchants. 

However, the battle over Visa and Mastercard’s long-term pricing practices appears far from over.